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Subject Area: Political Theory

The Limits of Mechanistic Economics - Leonard P. Liggio, Literature of Liberty, April/June 1979, vol. 2, No. 2 [1979]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


The Limits of Mechanistic Economics

John C. Moorhouse

  • Wake Forest University

“The Mechanistic Foundations of Economic Analysis.” Reason Papers 4 (Winter 1978): 49–67.

The neoclassical paradigm that dictates the methodology of mainstream economics limits the problems analyzed within economics and shapes their solution. Whatever success economics enjoys among the social sciences stems from the set of questions it considers appropriate. In pursuing this Kuhnian analysis, Moorhouse also draws support from F. A. Hayek's critique of the methodology of economics. Hayek argues that, as a social science, economics requires a methodology distinct from that of the natural sciences.

Economics enthusiastically borrowed its methodology from classical (mechanical) physics. Basically, those methods are analytic reduction and isolation, the assumption of reversibility, and the framing of questions in terms of equilibrium. The role of each of these methods in both physics and economics is sketched and then discussed in terms of their inappropriateness in economics. This criticism arises from the fact that economic systems involve human actions. Whereas mechanical processes are reversible, human beings learn from experience—so that initial conditions can never be restored. In a mechanical process, the equilibrium state and adjustment path are uniquely determined by the initial conditions; however, human actions are adaptive and purposive — so that far different sets of economic conditions can produce the same equilibrium, and a stochastic shock to an economic process may not affect the final equilibrium. While the mathematical techniques associated with equilibrium/maximization work with known factors in physics, knowledge of the means and ends relevant to the economic system is dispersed among individual persons—so that the use of such techniques is limited in economics. Whereas we can successfully apply the analytic tools of reduction and isolation to reversible mechanical processes in closed systems and in experimental settings, human action adds qualitative, adaptive, and subjective dimensions to the processes under study. This makes it difficult to isolate economic relationships from impinging factors, and the economic system is only misleadingly divisible into units of analysis.

These limitations of the neoclassical paradigm suggest that economists could explore an alternative paradigm that takes as given the complexity of economic systems and sets out to explain their qualitative change and evolution.

Governmental attempts to regulate and direct the economy are based on the same mechanistic assumptions that have allowed the success of economics in limited respects but have hampered any fundamental understanding of economic systems. Examining these assumptions can help to explain the inherent difficulties and recognized failures of such governmental attempts, and can redirect the discipline of economics and the course of government-economy relations.